The inaugural All-Party Parliamentary Group on Islamic Finance (APPGIF) stakeholder meeting took place at Millbank House, Westminster on Monday 20th November 2017. Lord Sheikh and Baroness Uddin, APPGIF office holders, were joined by 25 senior representatives from financial services, professional services and academia.
Lord Sheikh started the meeting by providing an introduction to the APPGIF outlining its aims and some of the work it has been involved in over the last few months. Baroness Uddin thanked Lord Sheikh for his dedication and reinforced the APPGIF’s desire to listen to, and collaborate with, industry.
The purpose of the meeting was to take initial soundings from the market-place to try and identify areas where the APPGIF may be able to assist.
Financial Services Insights
The first agenda point was to get insights from banking, investment and insurance perspectives. The initial discussion focused around developing the personal finance sector which, especially with the recent focus on a possible new Government Sukuk and the Bank of England looking into a liquidity management tool for UK Islamic banks, appears to have gone down the priority list. Since the global financial crisis it was suggested that a number of financial institutions in the UK have changed their strategy and withdrawn from the marketplace. As a result it was argued that London is losing ground to other international jurisdictions such as Dubai and Bahrain.
Although consumer demand is growing in the UK awareness of Islamic finance and the small number of retail providers remain key challenges. Further issues around the lack of representation of Islamic finance in the Council of Mortgage Lenders, a Treasury funding scheme unsuitable for Islamic banks and legislative blockages (such as around certain tax issues) that inhibit Shari’ah compliance were all highlighted as competitive disadvantages faced by Islamic finance institutions. Without the legislative and Governmental support to provide a level playing field Islamic finance providers are not able to develop products that compete with conventional alternatives.
From an insurance perspective it was mentioned that there is a strong demand for Shariah compliant insurance but the absence of rules and regulations that address specific issues that affect Shari’ah compliant insurance (including syndicates, scholars and reputational risk associated with Fatwa shopping) makes it difficult for the market to reach its full potential.
A lack of transparency as to where Islamic finance sits within Government as well the ongoing rotation of Ministers and civil servants (which requires constant re-education of new Ministers and civil servants) makes it difficult to focus attention on problems that are important to the general population.
The discussion then turned to Shari’ah scholars. It was suggested that some scholars have a lack of trust and confidence in Islamic finance thereby highlighting the need for transparency from Islamic finance institutions. Shari’ah validation is a significant problem and can create reputational risk particularly as Shari’ah advice is not financial advice. Anyone giving personal finance advice must be regulated, certified and approved by the FCA.
The regulation of Scholars was debated with the consensus being that a central board would not work in the UK. It was mentioned that there is work underway to explore the possibility of a self-regulating body for Scholars in the UK. The body could agree recognised qualifications and standards to help facilitate a standardised approach and consistent decision-making. It must, though, be credible and acceptable to the community if it is to succeed.
There was broad agreement that training Scholars should remain a priority.
Exporting the UK’s IF Capability
The second agenda point was focused on exporting the UK’s Islamic finance expertise. The UK banking system is respected throughout the world and there is a lot of interest about how the UK has created the architecture for Islamic finance. It was also highlighted that we have a real strength in professional advisory services.
In terms of exporting our Islamic finance capability, the UK is a trusted financial services centre with security, language, legal framework and commonwealth commonality. The examples of a new training programme with the National Bank of Kazakhstan and consultancy work in Kenya were mentioned.
In recent years the UK has been good at promoting its expertise internationally although, despite being a global centre, it was suggested that there are capacity issues and a general lack of facilities available in the UK. There is, however, scope to undertake re-insurance on a non-takaful basis.
It was highlighted that with no formal promotional roadshow or Government funding, to promote the Islamic finance capability internationally, it can be time and cost prohibitive for the private sector to continue to do this. It is important to understand what other jurisdictions are looking for and the UK should pool our expertise to create a comprehensive offering.
Islamic finance represents an opportunity for Foreign Direct Investment. The sector is over-represented in real estate, which is not healthy, so the UK sector should expand its horizons and, for example, develop its potential as a global centre for Islamic Fintech. A failure to move quickly will result in the UK being left behind. A further opportunity is to tap into liquid Middle Eastern / Malaysian money which can help address a funding gap in the mid-markets where investors are looking for 5 year returns.
A number of jurisdictions with an interest in Islamic finance have budgetary constraints and rely, for example, on IDB technical assistance grants, World Bank/IFC support and Department for International Development (DfID) assistance. DfiD is interested in Islamic finance from a financial inclusion perspective and also as a form of development capital for co-investment. DfID is keen to work with the APPGIF to develop opportunities for the UK IF sector and proposed the establishment of an informal advisory group.
- Need for academic and industry collaboration as well as promoting Islamic finance to students
- It was mentioned that the re-issuance of the Sukuk has not been confirmed and it seemed that the Government may be looking for it to demonstrate ‘value for money’. There was frustration from some participants about the lack of reward for those who supported the initial launch.
- Start-Up Loans
- Lord Sheikh explained that this matter was discussed when the APPGIF met with Stephen Barclay MP (Economic Secretary to the Treasury) in September 2017. Although Shariah compliant start-up loans have been launched the uptake has been low suggesting an awareness issue.